Empirical analysis of production risk and technical efficiency of sesame farmers in northwest Ethiopia

Abstract

Agricultural production is very risky, which can lead to significant shifts in income for individual farmers. De-risking input allocation due to production risk can change the level of technical efficiency. Therefore, the production risk component needs to be accounted for in the stochastic frontier model to produce unbiased estimates of technical efficiency. This study was conducted to assess the risks and efficiency of sesame production and to examine factors affecting farmers’ technical efficiency. A one-stage stochastic frontier model is used to estimate the production risk and technical inefficiency. The results show that the most suitable model for sesame production is the Cobb-Douglas function. The Cobb-Douglas model estimation shows that all agricultural inputs have a positive impact on sesame yield. Land and seeds are the most important factors in sesame production, followed by fertilizers, oxen, labour and chemicals. Fertilizers have been shown to reduce production risk, but oxen and chemicals are riskier. Sesame farmers have an average technical efficiency of 92.5%, indicating they can achieve 92.5% of their maximum production. A combination of farmer-specific factors could explain the differences in technical efficiency. Sesame farmers cannot achieve their planned production due to technical inefficiency and production risks. The study recommends that inputs for sesame production, such as fertilizers, should be easily accessible and inexpensive to increase technical efficiency and reduce production risk. Farmers should also be encouraged to adopt the best agronomic practices in sesame cultivation through improved support through extension services.

Keywords

• Yield
• production variability
• inefficiency
• stochastic frontier
• Cobb-Douglas
• agricultural inputs